Question

In an adjusting entry for expenses incurred but not yet paid ______. a. a liability is increasing since cash will be paid in the future due to the expense incurred b. a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment c. the liability recorded when cash was received is increasing as the expense is incurred d. the liability recorded when cash was received is decreasing as the expense is incurred

Answer 1

Answer:

a. a liability is increasing since cash will be paid in the future due to the expense incurred.

Explanation:

Adjusting entry is journal entry that is recorded at the end of an accounting period to represent all revenues and expenses incurred at that point in time. This is done in compliance to accrual method of accounting.

For expenses the cash has not been paid yet.

An example is for wages payable. Assume a company owes employees $1,000 at year end but payday is by next month, an adjusting entry is raised where debit of $1,000 is passed to Wage Expense and credit of $1,000 is made to Wages Payable.

Wages payable is a liability account and it increases because cash will be paid in the future to settle wages.